EU Commission sees possible UK recession next year after Brexit

According to estimates by EU executive staff, Britain is expected to endure a 'substantial slowdown'

Britain's economy may slip into recession next year following the vote to quit the European Union, the European Commission estimated on Tuesday in its first assessment of the economic impact of Brexit.

Last week the commissioner for economic affairs, Pierre Moscovici, said the cumulative negative impact for British gross domestic product (GDP) would be between about 1% and 2.5% by 2017.

Estimates prepared by the EU executive staff and released on Tuesday give more precise figures than those provided by Moscovici and add a breakdown for this and next year.

Britain is expected to endure a "substantial slowdown" which will limit its economic growth between 1.3% and 1.6% this year, lower than earlier estimates of a 1.8% growth.

The European Commission's simulations project a much worse situation for next year, when Britain may experience a 0.3% contraction in the worst scenario.

In the most optimistic scenario Britain's gross domestic product would grow 1.1% in 2017, still much less than the previously forecast 1.9% rise.

The 23 June Brexit referendum "will affect not only the UK but also the rest of the EU economy through several transmission channels, mainly uncertainty, investment, trade and migration," the Commission added.

It estimated that GDP growth in the euro area would moderate marginally in 2016 to 1.5-1.6% and to slow further in 2017 to between 1.3 and 1.5%

In the Commission's latest economic forecasts released in May, the 19-country currency area was expected to grow 1.6% this year and 1.8% in 2017.

The Commission said that this assessment of the Brexit economic impact could change since the referendum had created an extraordinarily uncertain situation.

However, it added that the UK's 'leave' vote had "generally increased risks to the outlook, particularly on the downside".